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Startup Equity 101

quarter--mile.com

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Re: Startup Equity 101

#71

Post by andrew_lettuce »

Eridrus wrote: post #52
TuringNYC wrote: post #12

>> So what is your equity really worth?... >> ... >> The difference between the most recent FMV (409A) valuation and your exercise >> price. ... >> The difference between the Preferred Price and your exercise price.... The real answer is that it is probably not worth anything unless they have stock liquidity events that only a handful of large startups have (e.g. Stripe.) If you dont have that, the price is purely th…

I think the main takeaway from any startup stock advice is what this article starts with: you need to pick a good startup. The details all matter, but they all matter far less than that fact. People shouldn't lump all startups together and should have a long think about whether they actually believe in the startup they're joining.

Ok, now tell us how we differentiate across 10-person, pre-revenue startups. This advice is like buy low, sell high. Thanks.

Re: Startup Equity 101

#72

Post by semitones »

vrosas wrote: post #26

One thing I've learned working for startups is if you're working for a founder who's already had a previous successful startup exit(s), two things are true: 1. the founder already has generational wealth and this current company means practically nothing to them. 2. they've already learned every trick in the book to keep the company's value in their own pocket and out of the hands of their employees.

This seems highly cynical. If the current company means practically nothing to them, why would they be bothering with it at all, especially given that they could be doing almost anything else they wanted, given their generational wealth?

Re: Startup Equity 101

#73

Post by semitones »

windowshopping wrote: post #68

This guide leaves out something extremely important that just fucked over a friend of mine: double-trigger RSUs. My friend thought he was getting a certain amount of stock annually, but in fact he only got it if he was still employed there when the company went public. So after six years they fired him right before going public a month later, and he got nothing. And in order to get any severance, he had to sign an ag…

The guide mentions double-trigger RSUs

Re: Startup Equity 101

#75

Post by davedx »

Eridrus wrote: post #52
TuringNYC wrote: post #12

>> So what is your equity really worth?... >> ... >> The difference between the most recent FMV (409A) valuation and your exercise >> price. ... >> The difference between the Preferred Price and your exercise price.... The real answer is that it is probably not worth anything unless they have stock liquidity events that only a handful of large startups have (e.g. Stripe.) If you dont have that, the price is purely th…

I think the main takeaway from any startup stock advice is what this article starts with: you need to pick a good startup. The details all matter, but they all matter far less than that fact. People shouldn't lump all startups together and should have a long think about whether they actually believe in the startup they're joining.

IME picking a good startup is extremely difficult, because even the ones with PMF and growing customers can so easily fail at execution: the human factors are so huge there. You can definitely narrow the field (use common sense: evaluate their business), but long term it’s impossible to know.

Re: Startup Equity 101

#76

Post by leguy »

gorgoiler wrote: post #69

I know too many people who’ve had their stock zeroed out through dilution, preference vs common, partial buyouts where only some founders and investors get to sell, spurious “bad leaver” status for people who work for so-called competitors, forced resignations within particular timeframes that cause stock forfeiture, and on and on and on. It would be an interesting addition to this guid to see these scenarios collect…

I would have loved to see such a list when I joined a startup. I'm not sure it's possible to make a comprehensive list, given all the various startup structures and agreements, but still a "top 10" list with some guidance on how to protect yourself would be valuable.

Or... an SLM where you feed the model your contract and it provides a list with recommendations tailored to your situation.

Re: Startup Equity 101

#77

Post by mlinhares »

usrnm wrote: post #66
jiveturkey wrote: post #64

Earlier quoted context omitted.

Not sure if you mean that seriously, or with tongue in cheek. It takes a very healthy dose of luck and market timing to be successful. Even the VCs, the experts, don't know how to pick winners. They expect a 90% failure rate, and this is among the ones they picked ! As an employee you don't have the same profit structure in play -- you can only work at one startup at a time. You cannot spread your bets around and let…

That all is correct and leads to a very simple conclusion: working for a startup has a very low probability of making you rich. Doesn't mean that people shouldn't do it, but it's better to have healthy expectations.

I still think its good for college grads, gives you a lot of leeway and space to play around with many different hats and find one that fits you better.

Incredibly lousy way to make money though, odds you will hit jackpot are none unless you're one of the founders and even then odds are still small.

Re: Startup Equity 101

#78

Post by bradlys »

woodrow wrote: post #63
bradlys wrote: post #24

> If you join an early stage company and you have a decent amount of excess capital, early exercise everything and file an 83(b) election. The reasons for doing this: starting the QSBS clock, starting the long term capital gains clock, not needing to worry about your options expiring. I don't think this is ever worth the risk. If you're even thinking of doing this for QSBS purposes... the amount of tax you'd incur is…

FYI the whole point of early exercise + 83b election is that you "pay" all tax due, but the tax due is $0, so you don't pay anything. There _is_ non-trivial risk of sinking liquid cash into illiquid startup stock, but this risk has nothing to do with tax.

If you’re joining after there’s been any money raised, you’re likely triggering some taxes.

How many people are joining startups that haven’t had a 409A yet? I’ve joined seed stage companies and even then - there’s a FMV that would trigger taxes.

My more general point is that you should be a founder (cause it’s what you want to do) or join a pre-ipo (cause you need employment/money).

Re: Startup Equity 101

#79

Post by bradlys »

mlinhares wrote: post #77
usrnm wrote: post #66

Earlier quoted context omitted.

That all is correct and leads to a very simple conclusion: working for a startup has a very low probability of making you rich. Doesn't mean that people shouldn't do it, but it's better to have healthy expectations.

I still think its good for college grads, gives you a lot of leeway and space to play around with many different hats and find one that fits you better. Incredibly lousy way to make money though, odds you will hit jackpot are none unless you're one of the founders and even then odds are still small.

If a college grad is choosing between faang and no-name startup, their career will likely go over much better than no-name startup. Having the big name on your resume does wonders. Even for experienced candidates, keep taking the big name. The market rewards it. (Including startups - compensation packages for people with faang resumes usually are better)

Re: Startup Equity 101

#80

Post by dymk »

semitones wrote: post #72
vrosas wrote: post #26

One thing I've learned working for startups is if you're working for a founder who's already had a previous successful startup exit(s), two things are true: 1. the founder already has generational wealth and this current company means practically nothing to them. 2. they've already learned every trick in the book to keep the company's value in their own pocket and out of the hands of their employees.

This seems highly cynical. If the current company means practically nothing to them, why would they be bothering with it at all, especially given that they could be doing almost anything else they wanted, given their generational wealth?

They’re doing it for fun / dick waving contest / it’s all they know / “sigma grindset” mentality

Why do dogs chase frisbees?

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